the 3 months interest rates (annualized )in China and Australia are 1 % and 6% respectively. Further GG Bank quotes a spot rate of RMB 82.64 and 90 day forward rate of 81.30RMB. Does interest rate parity hold? Where would you invest it? and where would you borrow? the foreign exchange quotes and interest rates present any arbitrage opportunity, if it has, then what arbitrage opportunities, and could you show that William’s profits for 5 million AUD investment with zero transaction costs. Back on last sentence, if William’s transaction cost are 0.25% per transaction, anything change?

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